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Friday, January 4, 2008

LONDON (Dow Jones)--The euro-zone economy slowed as 2007 drew to a close, with the paths of the currency area's four largest members diverging as the Italian services sector contracted while the French equivalent continued to expand at a rapid pace.

Market sources Tuesday said the purchasing managers index for the currency area's service providers fell to 53.1 in December from 54.1 in November.

The December figure was revised down from the preliminary estimate of 53.2 published Dec. 17. Economists surveyed last week had expected the figure to be unrevised.

A reading above 50.0 indicates the sector is expanding, while a reading below 50.0 indicates it is contracting.

A survey of purchasing mangers in the manufacturing sector released Wednesday showed activity in the sector slowed in December, although not as sharply as estimated on Dec. 17.

With the service sector also losing momentum, the composite PMI for the euro zone's private sector fell to 53.3 from 54.1, a reading that was unchanged from the preliminary estimate and points to a cooling of economic activity.

However, even strong indications that the euro-zone economy is slowing are unlikely to persuade the European Central Bank to follow the U.S. Federal Reserve, the Bank of England and the Bank of Canada in cutting interest rates.

That is because the inflation rate matched a record high of 3.1% in November, with economists forecasting only a slight drop to 3.0% in December.

And with oil prices rising above $100 a barrel for the first time Wednesday, the ECB will continue to fret over the impact of that move on consumer prices generally, while remaining on the alert for signs that declining unemployment rates are generating a pickup in consumer spending.

The slowdown in the services sector was spread across the four largest euro-zone economies, although some suffered more than others. Service sector activity declined in Italy, but continued to increase in Germany and Spain, and at a much more rapid pace in France.